Many Leishmania (Viannia) parasites harbor the double-stranded RNA virus Leishmania RNA virus 1 (LRV1), which has been associated with increased disease severity in animal models and humans and with drug treatment failures in humans. Remarkably, LRV1 survives in the presence of an active RNAi pathway, which in many organisms controls RNA viruses. We found significant levels (0.4 to 2.5%) of small RNAs derived from LRV1 in both Leishmania braziliensis and Leishmania guyanensis, mapping across both strands and with properties consistent with Dicer-mediated cleavage of the dsRNA genome. LRV1 lacks cis- or trans-acting RNAi inhibitory activities, suggesting that virus retention must be maintained by a balance between RNAi activity and LRV1 replication. To tilt this balance toward elimination, we targeted LRV1 using long-hairpin/stem-loop constructs similar to those effective against chromosomal genes. LRV1 was completely eliminated, at high efficiency, accompanied by a massive overproduction of LRV1-specific siRNAs, representing as much as 87% of the total. For both L. braziliensis and L. guyanensis, RNAi-derived LRV1-negative lines were no longer able to induce a Toll-like receptor 3-dependent hyperinflammatory cytokine response in infected macrophages. We demonstrate in vitro a role for LRV1 in virulence of L. braziliensis, the Leishmania species responsible for the vast majority of mucocutaneous leishmaniasis cases. These findings establish a targeted method for elimination of LRV1, and potentially of other Leishmania viruses, which will facilitate mechanistic dissection of the role of LRV1-mediated virulence. Moreover, our data establish a third paradigm for RNAi-viral relationships in evolution: one of balance rather than elimination.